Partner sues Sterling Bay over suburban medical building

(Crain's) — Chicago developer Sterling Bay Cos. faces a court fight with its partner on a $30-million medical building in Burr Ridge that opened about six months ago.

Blackrock Medical Corp. alleges that Sterling Bay failed to reimburse it for certain development-related expenses and kept Blackrock in the dark when it decided to refinance the 104,000-square-foot building in June. The lawsuit argues that Blackrock is entitled to at least $650,000 in proceeds from the refinancing, money that Sterling Bay won't pay.

Burr Ridge-based Blackrock drew up plans for the project a few years ago, lining up Loyola University Medical Center as its main tenant. After raising about $9 million from investors including the Crown family, Sterling Bay took over as a majority partner in December 2009 and lined up a $20.5-million construction loan.

The lawsuit suggests the partnership was tense even before construction began. For example, a contractor filed a lien against the property for an unpaid bill that Blackrock was ultimately forced to pay, the complaint says.

Sterling Bay also promised Blackrock that it had financing lined up back in May 2009, a statement that turned out to be false, according to the complaint, filed in Cook County Circuit Court. As the clock ticked, Blackrock continued to lose money on its investment because it had to keep making payments on a loan it took out on the development site, at 6800 N. Frontage Road, the suit says.

Blackrock “found it difficult, if not impossible, to obtain information about the progress of the project from Sterling Bay,” it says.

Sterling Bay Principal Scott Goodman says the lawsuit "is baseless and without merit." "We did everything we were supposed to do in our agreement (with Blackrock) and more," he says.

Executives at Blackrock and a lawyer for Blackrock did not return phone calls.

The Loyola Center for Health at Burr Ridge, which opened in March, is the largest academic outpatient center in the suburbs, according to Loyola. With more than 70 practicing physicians, it offers primary care, rehabilitation services and a range of specialties, including orthopedics and neurology.

Loyola occupies two of the building's three floors and is in the process of moving into the third, says Burr Ridge Community Development Director Douglas Pollock.

“It certainly worked out well for the village,” he says. “We're very pleased to have Loyola in town.”

Blackrock was anything but pleased to hear that Sterling Bay refinanced the building without distributing the proceeds.

The Sterling Bay-led development venture borrowed $26.9 million from Bank of America N.A. in early June, county records show. That would imply that the transaction generated more than $6 million in proceeds after the venture paid off the $20.5-million construction loan.

Blackrock is entitled to a minimum distribution of $650,000 if the project is sold or refinanced, according to an operating agreement cited in the lawsuit. Sterling Bay has not only not paid the money, but didn't tell Blackrock about the new loan until after it closed and has refused to provide any documentation of the transaction, the lawsuit says.